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The World's Most Competitive Countries

The United States is holding its own in first place. For the past 26 years, IMD, an international business school in Lausanne, Switzerland, has issued a list of the countries it says are the world’s most competitive. The U.S. had been in the No. 1 slot for more than a dozen years until the great recession knocked it from the top rung, in 2010. Though it regained the No. 1 slot in 2011, the hangover from the recession nudged it out of the top spot again in 2012. Once American financial markets recovered and business efficiency and profitability revived, it regained its dominant position last year. It’s in the No. 1 slot again this year.

IMD ranks 60 countries across the world, measuring a staggering 338 criteria in four broad categories—economic performance, government efficiency, business efficiency and infrastructure. For one third of the ranking, IMD uses a survey of more than 4,300 international executives. For the rest, it relies on hard statistical data from institutions like the Organisation for Economic Co-operation and Development, the International Monetary Fund and the World Bank, which keep track of measures like direct investment, budget surpluses, revenues from tourism, and unemployment. IMD also takes advantage of 55 “partner institutes” around the world, like Ireland’s development agency IDA Ireland, the Federation of German Industries, and the Mitsubishi Research Institute in Japan, who help gather statistics from national sources and distribute the executive surveys, which ran from January through March of this year. (For more on IMD’s methodology, click here.)

Here is IMD’s list of the ten most competitive nations in 2014, with their 2013 ranking in parentheses:

I talked to Professor Arturo Bris, director of IMD’s World Competitiveness Center, about the results. Originally from Spain, he has been a professor at IMD since 2005, teaching courses on strategic management and strategic finance, and a class on orchestrating winning performance. Before he joined IMD, he taught corporate finance and investment banking at the Yale School of Management, from 1998 to 2005. He became IMD’s director in January. After pouring over the competitiveness rankings, he has a thorough take on the macroeconomic picture in each of the 60 nations on the list. I interviewed him about why some countries rose in the rankings and others slipped and what role income equality plays in competitiveness. Here are excerpts from our conversation:

How did the U.S. stay on top of the list this year?

The U.S. is an economy that is difficult to beat. It’s a big economy, it has a huge domestic market, it dominates the world in terms of innovation and infrastructure. It is the most overseas-oriented economy. It is the largest importing economy in the world and by volume it is the largest exporting economy, not in relative terms to GDP but in absolute terms. The more you expose yourself to international competition, the better your products and your services are. The U.S. is also top in terms of international investment .

Does the increasing gap between rich and poor in the U.S. affect its competitiveness?

When we talk about competitiveness, we don’t talk much about fairness. Fairness is more a moral issue. If you look at the top countries on our list, they are not the equal countries, with the exception of Sweden. The U.S., Switzerland, Hong Kong and Singapore are countries where income inequality tends to be high. If you look at our data, there is a U-shaped relationship when it comes to income inequality. Countries that are very competitive or not competitive at all tend to be very unequal. The two extremes are the U.S. and Venezuela. Both countries are quite unequal. The countries where economic inequality is quite low, rank high but they are certainly not on the top. There is a price to pay in order to promote or guarantee a certain level of equality and that comes at the expense of competitiveness.

What does this year’s list say about competitiveness in Europe?

Europe is back. Except for Italy and Greece. All the other countries in Europe improved in their ranking, from Germany to Portugal. But there is still a big divide between the northern countries and the south. It is difficult to have a European union where everybody pretends to be an exporting country. There are the successful economies that are exporters like Germany and the Netherlands or Norway. But the southern European economies cannot be export economies.

I’m Spanish so I’m speaking about my own country. Though a massive devaluation has lowered prices and allowed us to export more, that’s not sustainable in the long run. We still need to find a productive system that will create employment. Despite Spain improving six positions in the ranking, unemployment was high, at around 30% last year. At least that’s better than 2013 when it was 35%. If you look at GDP growth, investments abroad,foreign direct investments in Spain, those have improved significantly, but in employment numbers Spain ranks No. 59 out of 60 countries. It’s very similar for other southern European countries.

Russia improved, moving from No. 42 to No. 38. Is the economy really becoming more competitive?

One of the problems with our ranking is it doesn’t take into account everything that has happened in the last month, like the Ukraine crisis. The main area of improvement in the Russian economy had to do with the efficiency of the government, not only in the hard measures for public financing, but there was a slight improvement in total government debt. Russia has a very low ratio of debt to GDP; it’s only 13%. That’s only one tenth of the U.S. The improvement in the ranking this year was due to the perception that the government was becoming more efficient in promoting economic growth. I’m sure if we did the survey now, the impressions would be different.

I want to ask you about the other BRIC countries: Why did China fall from No. 21 to No. 23?

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